CentER

Jacco Wielhouwer

Abstract:
Strategic tax planning is not only important for tax consequences, but it can also have important effects on other decisions of the firm, such as the investment strategy. In these decisions however, it is important to account for uncertainty that is inherent in the future. This thesis deals with optimal tax depreciation, i.e. the minimization of expected discounted tax payments through the choice of the depreciation method, and its effects on optimal firm investments. Operations research tools are used to find optimal tax depreciation strategies given uncertain future income, progressive tax structures and constraints imposed by the tax authorities. Furthermore, the value of deferring taxes to later periods and how this affects the optimal investment strategy and long run capital stock level of the firm is analyzed. The value of loss carryovers is studied as well as the effects of loss carryovers on the exercise date of real investment options.

Besides the economic results, the use of operations research tools yields several interesting results in itself. The path coupling method, developed to solve continuous time dynamic problems, is applied in a discrete time setting and a new efficient algorithm for resource allocation problems is derived.